Federal appellate courts have promulgated divergent legal standards
for pleading fraud in securities fraud class actions after the Private
Securities Litigation Reform Act (PSLRA). Recently, the Supreme Court of
the United States issued a decision in Tellabs, Inc. v. Makor Issues &
Rights, Ltd. that could have resolved these differences, but did not do so.
This Paper provides two significant contributions. We first show that
Tellabs avoids deciding the hard issues that confront courts and litigants
daily in the wake of the PSLRA's heightened pleading standard. As a
consequence, the opinion keeps very much alive the circuits' disparate
interpretations of the PSLRA's fraud pleading standard. To be sure, Tellabs
might ultimately be applied by lower courts to narrow the range of
permissible approaches to satisfying the strong inference standard, but
leaves a good deal of room within which wide variations in approach will
continue. Our second contribution is empirical in that we seek to answer the
question: do plaintiffs' attorneys take advantage of the differences among
the circuits' interpretation of the pleading standard to select more favorable
venues to file their cases, as some scholars have claimed? We find that 85
percent of the securities fraud class actions in our sample are filed in the
home circuit of the defendant corporation. While we find that the
differences in the circuits' pleading standards do not have a statistically
significant impact on the plaintiffs' choice of venue, we find that plaintiffs
are more likely to file low-value cases in jurisdictions other than the one in
which the defendant's headquarters is located.
Description
The Continuing Evolution of Securities Class Actions Symposium